TI revised its third-quarter revenue figures to $3.23 billion to $3.37 billion (compared with $3.40 billion to $3.70 billion) and its earnings per share to between 56 cents and 60 cents (compared with the prior range of 55 cents to 65 cents).

Altera expects third quarter sales to be in the range of down 3 percent to up 1 percent from the prior quarter. Previous guidance was for sales growth of 2 percent to 6 percent.

Fairchild now expects sales to be $400 million to $410 million, compared with previous guidance of $433 million to $446 million.

Both Fairchild and TI cited reduced orders from distributors as one reason for their revisions. Distributors can account for as much as 30 percent of semiconductor manufacturers' sales worldwide.

Bloomberg estimates the world's three largest distributors -- Avnet, Arrow, and WPG -- account for 21 percent of TI's sales.

Demand is weak in all product areas, companies and analysts say. "The weakness is fairly broad-based," said Tore Svanberg, an analyst at Stifel Nicolaus & Co., in the Bloomberg report. "I don't think there's a place to hide right now."

It's not surprising that distributors have stalled new orders. During their Q2 earnings conference calls, analysts queried both Arrow Electronics Inc. (NYSE: ARW) and Avnet Inc. (NYSE: AVT) about their higher-than-expected levels of inventory. Both companies said their inventory levels were in line with demand. However, the third quarter is traditionally a strong quarter as companies begin to ramp up for fourth-quarter holiday sales. Chipmakers say the expected uptick hasn't happened. According to the Fairchild press release:

"Distributor sell through of our products has been lower than expected and we are reducing our shipments into the channel accordingly," said Mark Thompson, Fairchild's president and CEO. "Demand from OEM customers has remained stable and we expect to record modest sequential sales growth to direct customers in the third quarter. In the distribution channel, sell through has yet to show signs of the normal seasonal increase in a number of end markets including computing and consumer. Sell through has also been below expectations for appliances as some Asian customers reduce inventories..."

Arrow Electronics reported its book-to-bill ratio -- an indication of new order activity -- had rebounded in the first weeks of July. Avnet had not experienced a similar trend. (See: Market Keeps Close Eye on Inventory.)

We won't see distributors siphon inventory into the open market, although OEMs and EMS companies might put excess on the block. Distributors are more likely to find new outlets for inventory among customers and markets that don't traditionally buy from them. However, analysts are likely to hammer distributors if inventory levels don't adjust quickly.

Since the March earthquake and tsunami in Japan, the supply chain has bulked up on stock a little more than usual. (See: Is More Inventory the 'New Normal'?) Although this might be a comfortable level for distributors and their customers, Wall Street continues to take a dim view on high inventory levels. (See: Inventory Levels Challenged Already.) Chipmakers' stock prices fell on news of the third-quarter adjustments; expect distribution stocks to follow.

Thanks for the article Barbara. I find it very concerning that three companies have downgraded sales expectation. I wonder if this is just an inventory correction or if it speaks to a potential weaker holiday buying season? If it is the later then it represents issues with our economy which has been slow to recover. It seems like every time we expect turnaround and recovery, the market takes a hit for one reason or another and consumers get gun shy yet again.

It seems like most of the electronics supply chain is feeling the crunch. Even Apple isn't doing what was originally forecasted. With the global economic instability rearing its ugly head again, many consumers and businesses are cutting back spending. This is being felt throughout the supply chain. Even though TI downgraded their expectations along with many other companies, it does appear that they are still going to end up in the black. Many investors and board members need to realize that while they might not of made as much money, they are still running in the positive. And that is much better than running in the red and wondering how they are going to survive.

I personally believe chip makers will be impacted by people preferences. In a recent past we would say producers were in condition to influence market quite indipendently from people thoughts. As of today it seems we are assisting to the reverse condition: people make the market. That said, there is potentially the possibility chipset from PC or Notebook won't be required as in the past and demands for mobile chipset will grow a lot. If we consider when I was young, TI was famous and leader for personal calculator, it is quite easy to understand possible scenario in the near future.

Just saw the news article that Poverty level has reached an all time high since 1996. Median income is now at ~50k. I guess people are now one man household because it seems salary should be higher for a specific position due to inflation.

WIth this kind of news, people will be more reluctant to spend money. Hence demand will not go up.

I find it very concerning that three companies have downgraded sales expectation.

@eemom, I share your concerns. I just wonder what will these downgrades eventually lead to ? Will it result in further job cuts, or hiring freeze , or pay cut no body knows for sure. I think everyone is eagerly waiting for year-end sales season. If we dont see spike in the consumer spending then it means things are not yet stabilised.

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